After decades of paying Social Security taxes, retirement is the time for most people to reap the rewards. Unfortunately, navigating Social Security and its constantly changing guidelines isn't always easy.
Rather than focusing on all the information surrounding Social Security, become familiar with mistakes you'll want to avoid at all costs. Avoiding these mistakes can save you tons of headaches (and potentially money) down the road.
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1. Not knowing your breakeven age
When you claim Social Security benefits impacts how much your monthly benefit will be, and it all centers around your full retirement age (FRA).
Your monthly benefit at your FRA is the baseline for calculating your benefits if you claim them early or delay them past your FRA. You can claim benefits as early as age 62, reducing your monthly amount by up to 30% if your FRA is 67. You can also delay benefits until you reach 70, increasing them by two-thirds of 1% monthly (or 8% annually).
Delaying benefits for the increased payout may seem enticing, but it's not always the best option. When considering when to claim benefits, a key thing to know is your breakeven age. That's the age when the total amount received from claiming at FRA (or early) equals the total amount received by waiting until 70.
Suppose your FRA is 67, and your baseline benefit is $1,500 monthly. If you claimed benefits at 62, the monthly payout would be reduced to $1,050; if you delayed until 70, it'd increase to $1,860.
| Claiming Age | Monthly Benefit | Total Received By 75 | Total Received By 80 | Total Received By 81 |
|---|---|---|---|---|
| 62 | $1,050 | $163,800 | $226,800 | $239,400 |
| 70 | $1,860 | $111,600 | $223,200 | $245,520 |
Calculations by author.
In this example, your breakeven age would be between 80 and 81. Considering your breakeven age along with factors like financial needs, personal and family health history, and life expectancy can help you make a more informed decision about when to claim.
2. Claiming benefits early when you earn too much money
Claiming benefits before your FRA doesn't mean you must stop earning money; you'll just need to monitor how much you earn. Earning over a set limit will spark Social Security's Retirement Earnings Test (RET), which temporarily reduces your benefits until you reach your FRA, and then adjusts them to gradually pay back the withheld amount over time.
As an example, imagine your FRA is 67, and you claim benefits at 64 while earning over the limit. If the RET lowered your annual benefits by $2,000, Social Security would withhold $6,000 over the three years until you reach 67. After that, Social Security would recalculate your monthly benefits, increasing them in a way that gradually repays the $6,000.
For people taking Social Security benefits before reaching their FRA in 2023, the annual earnings limit is $21,240. People set to reach their full retirement age in 2023 can earn up to $56,520 in the months leading up to it.
3. Not knowing what's on your earnings record
Your earnings record is a history of all your earnings and projected monthly Social Security payout based on when you retire. To view your earnings record, create an account on the Social Security Administration website.
Checking your earnings record is good for two reasons. First, you want to ensure it's accurate. If you find an error, fill out a Request for Correction of Earnings Record form and submit it to Social Security, along with proof of the error. There's a cap on how much of your earnings are taxed by Social Security, so high earners and high net worth individuals may see a number lower than their earnings.
The other reason is that many people overestimate how much they'll receive in Social Security. Here are the maximum payouts by claiming age for 2023:
- 62: $2,572
- FRA: $3,627
- 70: $4,555
A very small number of people receive the maximum payout. Social Security calculates your monthly benefit by taking a percentage of your average income during the 35 years when your income was highest. To receive the maximum payout, you need to earn over the inflation-adjusted wage base limit ($160,200 in 2023) for the 35 years that Social Security uses in its calculations.
The average monthly benefit for retirees as of June 2023 was just over $1,788.
